Life insurance or funeral plan?

While life insurance payouts can go towards funeral costs, without the adequate provisions, families must often turn to savings, loans, family contributions, or even crowdfunding.

At what is already a challenging time, planning ahead not only reduces the financial burden, but also the practical and emotional stresses that come with it.

Flexibility versus function

Funeral plans and life insurance overlap, but solve very different problems. A lump sum paid out on death from an insurance provider can ultimately be used by beneficiaries to fund anything they wish, such as mortgage payments or household bills. Crucially, the money in a funeral plan has a dedicated use.

While the flexibility offered by life insurance can be valuable, it also comes with risks. Most premiums are payable for life, and if payments stop at any point, the policy may be cancelled with no payout at all – a potentially huge loss.

There’s also the question of value over time. Depending on how long you live, you could end up paying more in premiums than the lump sum ultimately paid out. And, because the cash amount is fixed, inflation steadily reduces its buying power.

Funeral plans lock in funeral director fees at today’s prices so, no matter how much they rise in the future, those costs are guaranteed.

Funds are also set aside for third-party expenses, such as crematoria or cemetery fees, flowers, celebrants or catering, with estimated inflation in mind.

Prepaid plans represent a more personal and practical approach. Built around an individual’s specific wishes, individuals can decide on the type of service they want, preferred arrangements, and the costs expected at the time of need.

Misconceptions of cost

As a funeral director, I often hear from individuals concerned about the cost of funeral plans. A common misconception is that insurance payments will be lower. However, they aren’t designed to cover specific needs.

Monthly funeral plan payments can also be set at an affordable level, but they reflect the realistic cost of a service today and take into account expectations for future budgets.

Many people also incorrectly assume funeral plans are rigid or that money is “lost” if it isn’t spent. In reality, they allow greater choice. If funds have been allocated for catering, for example, but less is spent, any excess may be refunded once the full funeral cost is calculated. It’s rare to find another type of policy that gives families money back if it is not spent.

Some of our funeral plans also offer payment suspension options and catch-up periods, whereas a life insurance policy may be cancelled if even one monthly payment is missed.

Potential challenges

Perhaps the greatest pitfall of relying solely on life insurance is that it leaves families with decisions to make – quickly, emotionally, and often without guidance.

A funeral prepaid plan does more than cover costs, it sets out wishes clearly and removes the burden of decision-making at an already painful time. Families know what to do, who to contact, and what the person wanted.

There are, of course, some potential risks. Most prepaid plans include an arrangement fee. And while funeral director fees are fixed, third-party costs, such as crematorium charges, florists, celebrants, and catering, have risen above inflation in recent years. If a plan is taken out today but not used for a decade, a small shortfall in those costs may need to be covered.It’s important to research the provider, and the details of the plan offered.

The ideal approach

In an ideal world, people would have life insurance for wider financial protection, and a prepaid funeral plan that sets out wishes clearly and covers costs.

The real gift is not just money – it is certainty. It allows loved ones to focus on saying goodbye, not scrambling around to make arrangements or worrying about finances.

It’s never too early to talk about your wishes. You can speak to experts to explore your options and realistic costs, and get one of my firm’s free Plan of Wishes that can be shared with your family.

It costs nothing to have the conversation, but it can be priceless for the people you leave behind.

Andrew Purves is a director and chief operating officer at William Purves Funeral Directors in Edinburgh

https://www.williampurves.co.uk/